Dividend policy and stock price volatility in Indian capital market

Abstract

As argued by Modigilani &Miller, the dividends are irrelevant only in perfect markets but in an emerging market like India, the dividends are expected to show its relevance. Indian capital market have surpassed a sea change in the recent past including demonetization, implementation of new tax regimes, political controversies and the like. Despite these facts, the Indian capital markets soars at many a times due to its active trading. Against this backdrop, this research paper seeks to examine the relationship between dividend policies and share price volatility. The motivation behind this research is to first time employ a powerful unbiased volatility estimator, created by Yang and Zhang that is 14 times as efficient as close to close estimate. A sample of 116 textiles companies, listed and actively traded in Bombay Stock Exchange of India (BSE) from 2008 to 2017 selected for the study. In examining the impact of dividend policy on share price volatility in Indian capital market, multiple least squares regressions is employed. Empirical results shows that dividends are affecting stock prices variations in India which fits in with the bird in hand and signaling theories of dividends. Due to the volatile nature of the market, Indian investors' prefer demanding more dividends from firms rather keeping retained earnings on reinvestment. The outcomes of this study supports the fact that dividends policy influence stock price variations in Indian capital market. The results of this study provides an insight to the financial managers in developing their dividend policies to maximizing the shareholders wealth.

Pengaruh Rasio Solvabilitas, Rasio Profitabilitas dan Kebijakan Dividen Terhadap Harga Saham

“…Mengenai besaran pembayaran dividen, masing-masing perusahaan memiliki kebijakan dividen yang berbeda-beda. Kemampuan perusahaan untuk membayar dividen dapat menunjukkan bahwa perusahaan memiliki nilai yang baik (Kumaraswamy et al, 2019).…”

The financial crisis and dividend policy: evidence from an emerging market

“…Tangrukwaraskul and Kulchanarat (2019) also document similar results when they investigate the dividend policy of Thai listed rms over the period of 2009-2018. Several studies show that investors prefer dividends in Singapore (Williams and Duro, 2017), Malaysia (Qamar, 2019), India (Kumaraswamy et al, 2019), and Rwanda (Ngoboka and Singirankabo, 2021). The global nancial crisis leads to high economic uncertainty.…”

“…Third, emerging markets may be promising laboratories for studies in corporate nancial decisions due to their special characteristics. Many studies nd supporting evidence for the bird in hand theory across young markets such as Pakistan (Farrukh et al, 2017), Thailand (Tangrukwaraskul and Kulchanarat, 2019), Malaysia (Qamar, 2019), India (Kumaraswamy et al, 2019) and Rwanda (Ngoboka and Singirankabo, 2021) in normal economic conditions. Therefore, our ndings may provide implications for managers and investors in other markets.…”

The Influence of Hedonic and Utilitarian Shopping Value Towards Consumer Behavioral Intention Among Youth Mall Shoppers

“…Discussing about the context of a shopping mall, easy access to shopping areas and good navigation of a mall attracts the utilitarian shoppers (Rahman, Wong, & Yu, 2016). For that reasons, a utilitarian shoppers preferred traditional markets where they could make their purchase fast in good price, and required less travel time to save travelling cost (Evangelista, et al, 2019;Kumaraswamy, Ebrahim and Wan Mohammad, 2019).…”